NIESR Monthly CPI Tracker - Consumers forced to tighten their belts further as underlying inflation exceeds 5 per cent
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NIESR
Monthly CPI Tracker
Consumers forced to tighten their belts further as
underlying inflation exceeds 5 per cent
Urvish Patel
23rd March 2022
“Annual headline CPI inflation increased to 6.2 per cent in February from 5.5 per cent in
January. Our measure of underlying inflation, which excludes extreme price movements,
increased to 5.1 per cent in February from 4.3 per cent in January, the largest month-on-month
increase since November 2021. Our analysis suggests annual consumer price inflation will
likely peak in 2022 Q3 above 8 per cent because of the impacts from the Russia-Ukraine war,
despite the Bank of England’s most recent policy hikes.”
Urvish Patel
Economist, Macroeconomic Modelling and ForecastingMonthly CPI Tracker
March 22 -2-
Main points
• Headline consumer price inflation increased to 6.2 per cent in February 2022 from 5.5 in
January. Our measure of underlying inflation which excludes 5 per cent of the highest and
lowest price changes, increased to 5.1 per cent in February from 4.3 per cent in January.
• The largest contributions to the upwards change in inflation came from the recreation and
culture and clothing and footwear sectors, which contributed 0.4 percentage points to the
change in the headline figure. The largest contributions to the annual figure remain the
household services (predominantly electricity, gas, and other fuels) and the transport
(predominantly motor fuel) sectors.
• In February, 30.9 per cent of goods and services prices changed, which is the highest since
August 2020. Approximately 17,000 items recorded price rises, which is the highest since
January 2011. Meanwhile, 4.3 per cent of prices were reduced due to sales and 4.2 per
cent fell for other reasons.
• Underlying inflation increased in all of the 12 UK regions. London’s annual inflation rate in
February was the highest at 6.1 per cent, compared to Wales which had the lowest at 4.2
per cent.
• The latest inflation figures for February will not have the impact from the Russia-Ukraine
war, but the expected rise in inflation in the short term following the war will likely force
consumers to tighten their belts further and dent economic growth. Higher energy prices
alongside rising VAT next month and second-round effects will mean consumer prices are
likely to remain above the Bank of England’s target until 2024.
• We expect the Bank of England will continue to raise interest rates in 2022. Our analysis
indicates that annual consumer price inflation will average 7 per cent in 2022.
National Institute of Economic and Social Research niesr.ac.ukMonthly CPI Tracker
March 22 -3-
Figure 1 – CPI and trimmed mean inflation (per cent)
Commentary
Annual headline inflation increased to 6.2 per cent in the year to February 2022, up from 5.5
per cent recorded in January. Price increases in recreation and culture and clothing and
footwear sectors contributed 0.4 percentage points to the change in the headline figure.
Household services (predominantly, electricity, gas, and other fuels) and transport
(predominantly motor fuels) remain the largest contributors to the annual inflation rate (2.6
percentage points of the 6.2 per cent annual rate). In February, our analysis indicates that
approximately 17,000 items recorded price increases, which is the highest since January 2011.
Our measure of underlying inflation, which excludes extreme price movements, increased to a
new high of 5.1 per cent in February from 4.3 per cent in January. This also marks the largest
month-on-month increase since November 2021. At the regional level, annual trimmed mean
inflation increased further in February in all of the 12 UK regions, with London recording the
highest annual inflation rate of 6.1 per cent, compared to Wales which had the lowest rate of
4.2 per cent.
The short-term inflation outlook remains bleak. The Russia-Ukraine war has further
aggravated shortages of energy supply and driven up the prices of wholesale natural gas and
oil, increasing the probability that the energy price cap will rise again in October 2022. This
will intensify the cost of living crisis and add to the existing pressures on household budgets
at a time when real incomes are being significantly eroded by higher inflation, which is
forecast to exceed 8 per cent in 2022 Q3. The second-round effects from higher nominal
wages particularly in the private sector will fuel further inflation, and thus intensify the
pressures on the Bank of England’s Monetary Policy Committee at a time when UK economic
National Institute of Economic and Social Research niesr.ac.ukMonthly CPI Tracker
March 22 -4-
growth is forecast to slow markedly to 4 per cent in 2022. Our analysis suggests that
headline inflation will average 7 per cent in 2022.
Figure 2 – Price decreases due to sales, decreases due to other reasons, and increases (per cent)
Table 1 – Regional trimmed mean inflation (per cent)
2021 2022
Jun
Region Feb Mar Apr May Jul Aug Sep Oct Nov Dec Jan Feb
e
London 0.2 0.7 2.2 3.3 3.7 3.9 2.7 2.5 2.9 4.3 5.0 5.2 6.1
South
-0.3 0.2 0.7 1.2 1.6 1.5 1.7 1.3 1.8 3.2 3.8 4.1 5.0
East
South
-0.1 0.2 0.9 0.9 1.6 1.3 1.8 1.5 2.1 3.4 4.3 4.3 5.1
West
East
-0.4 0.0 0.2 0.4 0.9 0.6 1.4 1.3 1.8 3.5 3.9 4.3 5.3
Anglia
East
Midland 0.9 1.5 0.9 0.9 1.2 0.8 2.1 1.9 2.4 3.6 4.4 4.6 5.3
s
West
Midland 0.2 0.5 0.8 1.4 1.7 1.6 2.2 2.2 2.6 4.0 4.6 5.3 6.0
s
Yorkshir
e and
0.7 0.8 0.9 1.0 1.1 1.0 1.4 1.4 2.1 3.1 3.8 4.0 5.0
the
Humber
North
-0.5 -0.1 0.4 0.8 0.9 0.6 1.5 1.5 1.7 2.9 3.8 4.1 5.0
West
North 1.3 1.2 0.7 0.6 1.3 1.1 1.8 1.8 2.4 3.4 3.8 4.4 4.6
Wales 2.2 2.2 1.3 1.2 1.7 1.8 1.8 1.7 2.3 3.0 3.4 3.4 4.2
Scotland -0.2 0.2 0.9 1.2 1.4 1.2 1.1 1.2 1.9 3.4 4.1 4.6 5.3
Norther
n 1.3 1.5 1.2 1.7 1.7 1.5 1.7 1.4 1.5 2.4 3.0 3.6 4.4
Ireland
United
Kingdo 0.2 0.6 0.9 1.2 1.6 1.4 1.6 1.6 2.1 3.4 4.0 5.5 6.2
m
Note: Our measure of trimmed mean inflation excludes 5 per cent of the highest and lowest price changes. The level of trimmed
mean inflation is typically lower than CPI inflation due to differences in how the largest price changes are treated and to how the
prices are weighted. Source: ONS, NIESR calculations.
National Institute of Economic and Social Research niesr.ac.ukMonthly CPI Tracker
March 22 -5-
Notes for Editors
This analysis builds on the work presented in the National Institute Economic Review, which
constructs a measure of trimmed mean inflation based on the goods and services prices that
underlie the consumer price index.
Our next analysis of consumer prices will be published on 13 April.
For further information please contact the NIESR Press Office: press@niesr.ac.uk or Luca Pieri
on 020 7654 1954 / l.pieri@niesr.ac.uk
National Institute of Economic and Social Research
2 Dean Trench Street
Smith Square
London, SW1P 3HE
United Kingdom
Switchboard Telephone Number: 020 7222 7665
Website: http://www.niesr.ac.uk
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